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Chapter 19: 3ISTQ (page 1113)

Under IFRS: (a) 鈥減robable鈥� is defined as a level of likelihood of at least slightly more than 60%. (b) a company should reduce a deferred tax asset when it is likely that some or all of it will not be realized by using a valuation allowance. (c) a company considers only positive evidence when determining whether to recognize a deferred tax asset. (d) deferred tax assets must be evaluated at the end of each accounting period.

Short Answer

Expert verified

The accounting period is the duration in which the organization operates in a year. As per the GAAP,the accounting period for each organization startsfrom 1st April and lasts till 31st march.

Step by step solution

01

Option (d) deferred tax assets must be evaluated at the end of each accounting period is the correct answer.

Option d is the correct answer.

02

Reason

According to the IFRS, every organization should recognize the value of deferred tax assets at the end of each accounting period. It helps the organization in estimating the amount of total income tax payable. It also helps the business determine that if any extra income tax is paid, they will be entitled to a refund.

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Most popular questions from this chapter

The pretax financial income of Truttman Company differs from its taxable income throughout each of 4 years as follows. Pretax Taxable Year Financial Income Income Tax Rate 2017 \(290,000 \)180,000 35% 2018 320,000 225,000 40 2019 350,000 260,000 40 2020 420,000 560,000 40

Pretax financial income for each year includes a nondeductible expense of $30,000 (never deductible for tax purposes). The remainder of the difference between pretax financial income and taxable income in each period is due to one depreciation temporary difference. No deferred income taxes existed at the beginning of 2017. Instructions (a) Prepare journal entries to record income taxes in all 4 years. Assume that the change in the tax rate to 40% was not enacted until the beginning of 2018. (b) Prepare the income statement for 2018, beginning with Income before income taxes.

The pretax financial income (or loss) figures for Jenny Spangler Company are as follows:

2012- $160,000

2013- 250,000

2014- 80,000

2015- 160,000

2016- 380,000

2017- 120,000

2018- 100,000

Pretax financial income (or loss) and taxable income (loss) were the same for all the given years. Assume a 45% tax rate for 2012 and 2013, and a 40% tax rate for the remaining years. Instructions (a) Prepare the journal entries for the years 2014 to 2018 to record the income tax expense and effects of the net operating loss carrybacks and carryforwards assuming Jenny Spangler Company using the carryback provision. All income and losses relate to normal operations. (In recording the benefits of a loss carryforward, assume that no valuation account is deemed necessary.)

(Explain Future Taxable and Deductible Amounts, How Carryback and Carryforward Affects Deferred Taxes) Maria Rodriquez and Lynette Kingston are discussing accounting for income taxes. They are currently studying a schedule of taxable and deductible amounts that will arise in the future as a result of existing temporary differences. The schedule is as follows.

Future Years

2017

2018

2019

2020

2021

Taxable income

\(850,000

Taxable amounts

\)375,000

\(375,000

\)375,000

$375,000

Deductible amounts

(2,400,000)

Enacted tax rate

50%

45%

40%

35%

30%

Instructions

  1. Explain the concept of future taxable amounts and future deductible amounts as illustrated in the schedule.
  2. How do the carryback and carryforward provisions affect the reporting of deferred tax assets and deferred tax liabilities?

: Describe the current convergence efforts of the FASB and IASB in accounting for taxes.

At December 31, 2017, Cascade Company had a net deferred tax liability of \(450,000. An explanation of the items that compose this balance is as follows.

Temporary Differences in Deferred Taxes

Resulting Balances

1. Excess of tax depreciation over book depreciation.

\)200,000

2. Accrual, for book purposes, of estimated loss contingency from pending lawsuit that is expected to be settled in 2018. The loss will be deducted on the tax return when paid.

\( (50,000)

3. Accrual method used for book purposes and installment method used for tax purposes for an isolated installment sale of an investment.

\)300,000

In analyzing the temporary differences, you find that \(30,000 of the depreciation temporary difference will reverse in 2018, and \)120,000 of the temporary difference due to the installment sale will reverse in 2018. The tax rate for all years is 40%.

Instructions

Indicate the manner in which deferred taxes should be presented on Cascade Company鈥檚 December 31, 2017, statement of financial position.
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